Ten years ago, innovation was a concept foreign to the Canadian legal market.

The financial crisis that had decimated the U.S. economy and its legal market had not hit Canada with the same force. Its banking and housing systems were insulated against the problems that plagued the U.S. and the U.K. and Canada’s natural resource exports were still booming.

“Ten years ago, bringing up innovation at a law firm would only have caused headaches,” says Jordan Furlong, a legal market analyst and consultant at Law 21. There was no market incentive driving law firms to innovate, he says.

But then, much like in the United States, the market began to shift. The recession crept past Canada’s borders, and legal demand flattened. Alternative legal service providers started gaining traction in the market, and clients became restless with their firms. Law firms needed to respond to this post-recession pressure. So, as in the United States, it was off to the races with legal innovation in Canada.

During the past decade, the Canadian legal market has experienced a sort of mini-boom in its innovation sector that has even spread to some of the country’s most traditional firms.

The 156-year-old Toronto-based firm Osler, Hoskin & Harcourt has created a platform called Osler Works that automates a variety of tasks for clients at a lower cost than usual. Its Seven Sisters rival Blake, Cassels & Graydon created a flexible lawyering platform, inSource, focused on document review, due diligence, commercial contract review and legislative updates. And in October, Borden Ladner Gervais launched BLG Beyond, which brings all of its innovation efforts under one roof to explore and pilot technologies in partnership with its clients.

“Over the course of the last decade, the large firms [in Canada] have picked up some of the urgency and the ­momentum that other law firms worldwide are prone to and acting on,” Furlong says.

But as Canada’s largest firms flex their innovation muscle, efforts across the legal market still haven’t reached critical mass—and there’s a price to pay in being left behind. As demand remains continuously flat and a new crop of talent pushes firms to change the way they do business, Canadian law firms may soon reach an innovation tipping point.

One of the oldest and largest law firms in Canada, Fasken Martineau DuMoulin began its innovation journey a few years ago. It concedes that its efforts then were modest at best.

“We would have automation projects being done off the side of someone’s desk and technology changes being done partly as our individual lawyers or practices would identify them,” says Peter Feldberg, Fasken’s managing partner. “It was a fair bit of keeping up with the Joneses.”

As the post-recession landscape began to change, the firm started to feel pressure from all over. Clients started asking the firm to think differently about its practice, Feldberg says, challenging it to re-examine the way it communicated with and billed them, and whether it could become more efficient.

At the same time, Fasken was feeling pressure from competitors across Canada.

“I remember a period three to four years ago where it seemed like there was a press release every week from some law firm putting in some sort of artificial intelligence solution or robots or holograms or what have you,” Feldberg says. “A lot of that was hype, but enough of it was real that you feel the pressure not to be left behind.”

Peter Feldberg, managing partner of Fasken.

Perhaps the strongest pressure the firm felt was from its young talent. The new lawyers the firm was bringing in weren’t afraid of technology or change, Feldberg says. Rather, they were looking at new tools and ways of doing things and “chomping at the bit to get at the opportunities.”

The firm hired its first chief innovation officer and created a team around the position with a mix of tech staff, associates and a partner. The group quickly got to work conducting focus groups and ideation contests.

At the firm’s office in Toronto, the team has an innovation hub on its own floor. Fasken centralized its analytics and scaled up its knowledge management endeavors—the building blocks of any innovation tool, Feldberg says.

With every step and investment it took on its innovation journey, Fasken wanted to remain intentional.

“The biggest struggle is the ‘how,’ because it’s not just a question of going out and buying the latest tool or gizmo or tech or something and then waving a wand and saying, ‘Poof, you’re innovative,’” Feldberg says. “It’s really a fundamental look at how you’re going to change the way you do your practice.”

The firm launched ViaFasken in 2016, a web-based platform that automates the organization of startups, becoming one of the first firms to cater to emerging companies in Canada. This summer, the firm launched Fasken InHouse, which helps the firm collaborate with clients for a fixed fee.

“We’re starting to see some real value in using AI tools with due diligence and discovery, and we’re seeing some real value in the design of new ways of communicating with clients, [and] our pricing is much better,” Feldberg says, noting that the firm’s pricing guide now uses algorithms rather than old budget matrixes. “So it hasn’t taken that long to produce results.”

Fasken isn’t alone in its quest to innovate. A 2017 survey by Deloitte of the Canadian legal landscape found that the majority of law firms surveyed are considering adopting new forms of technology in the next five years. But firms are at a crossroads.

“Firms can stand still at their peril, or they can look to understand the constructive change and identify opportunities for leveraging it,” says Michael Fekete, national innovation leader at Osler.

Ultimately, he says, firms should be “demonstrating to clients that they’re able to deliver more value through technology, through lower-cost delivery on repeatable tasks, through better process, and combining it with the best legal minds. That’s the core of what we’re trying to do.”

Like clients stateside, in-house teams are under more pressure than ever to control their bottom lines. One-third of chief legal officers in Canada ranked controlling legal spend as their top priority in 2018, according to the Deloitte study. Nearly half noted that they were using alternative fee arrangements with their outside law firms.

And, while firms are meeting this client demand, some are struggling to maintain their profit margins. There’s a need to drive growth as traditional drivers of profit and leveraged work for firms starts to slip away, Furlong says.

“Firms need new ways to encourage and facilitate clients, not just through continued use of the firm, but also finding ways for clients to spend money in different ways,” he says.

“Everything we’re doing is client-focused,” Fekete says. “We ask ourselves, ‘If I was the chief privacy officer, what would I want? If I was the general counsel responsible for deals at a financial institution, what tools would I want? What low-cost services would I expect?’”

As a part of its Osler Works initiative, the firm built out technology platforms for a wide array of client needs. One branch offers a full range of discovery services for clients, intended to save them time and money. Another helps with M&A and finance work.

Over the past 18 months, the firm has launched four self-help tools—unique to the legal market, it says—that include a mobile-friendly, interactive and customizable guide to doing business in Canada and a merger notification tool that helps users determine whether a transaction is subject to Canada’s federal law governing competition.

And the firm has already seen practical benefits from Osler Works, from a higher success rate in competitive bids for transactional and litigation mandates to increased price certainty and lower costs for clients. The cost of Osler Code Detect, a web application that scans source code to determine if there are any open source licenses that pose a licensing risk, has already been covered by its new revenue.

“It’s indicative of our approach with all these tools,” Fekete says. “We want clients to see [Osler] as a place to come when they’re doing business, not just when they have a problem.”

While Canadian law firms appear to be all-in on innovation, a 2017 study by Canada’s McGill University casts a different picture. The study pointed to a major disconnect between law firm leadership and associates on how they perceive innovation at their firms. Of the 105 lawyers surveyed, 84 percent of senior managers and partners agreed that innovation was of the highest strategic priority. By contrast, only 42 percent of associates agreed.

Associates are on the ground and have a sense of their expectations, Furlong says. And it is still, at most firms, all about billable hours. As long as that is the status quo, associates won’t take a firm’s investment in innovation seriously.

“The day associates are told, ‘We are shifting the basis upon which we are paying you; we are shifting the basis upon which we are preparing you to be partners; and we are shifting the basis upon which we will value and promote you for the way in which you deal with clients—that’s when you’ll get associates’ attention,” Furlong says. “And, by the way, that’s also when you’ll get clients’ attention, too.”

Email: mtribe@alm.com